How Fraud Flourishes Unchecked In Medicare's Drug Plan

With just a handful of prescriptions to his name, psychiatrist Ernest Bagner III was barely a blip in Medicare's vast drug program in 2009.

But the next year he churned them out at a furious rate — not just psychiatric drugs, but expensive pills for asthma, cholesterol, heartburn and blood clots.

By the end of 2010, Medicare had paid $3.8 million for Bagner's drugs — one of the highest tallies in the country. He added another $2.6 million the following year, records analyzed by ProPublica show.

Bagner, 46, says there's just one problem with this accounting: The prescriptions aren't his. "All of that stuff you have is false," he said.

By his telling, someone stole his identity while he worked at a strip-mall clinic in Hollywood, then forged his signature on prescriptions for hundreds of Medicare patients. Whoever did it, he was told, likely resold the drugs.

"These people make more money off my name than I do," said Bagner.

Today, credit card companies routinely flag or block suspicious charges as they happen. Yet under Medicare, a convoluted and poorly managed system for catching fraud allows scams to flourish, an investigation by ProPublica found.

Frustrated investigators for law enforcement, insurers and pharmacy chains say they don't see evidence that Medicare officials are doing much to stop it.

"It's kind of a black hole," said Alanna Lavelle, director of investigations for WellPoint, which provides drug coverage to about 1.4 million seniors in the program, known as Part D. Lavelle said her team routinely refers cases to the contractor Medicare hires to review them.

"Oftentimes we never hear back, positive or negative," she said.

Since it started in 2006, Part D has been lauded for its success in getting needed medications to more than 36 million seniors and disabled enrollees.

But ProPublica scrutinized Medicare's own data to identify scores of doctors whose prescription patterns bore the hallmarks of fraud. The cost of their prescribing spiked dramatically from one year to the next — in some cases by millions of dollars — as they shifted to brand-name drugs that scammers can easily resell.

Sometimes the doctors claimed they were victims of identity theft. In other cases they were paid for writing bogus or inappropriate prescriptions.

Bagner's case shows how fast a single doctor can be used to run up a staggering tab. Part D costs taxpayers $62 billion a year.

Bagner's flood of prescriptions had drawn the attention of law enforcement, insurers and Medicare as early as mid-2010.

In an interview, Bagner said he was working at a clinic then, when investigators showed up with a stack of prescription and medical records. The prescriptions bore a fake signature that closely resembled his, he said. "I wrote my signature. I showed them," he said. "They saw the difference."

Over time, more investigators from law enforcement and insurance companies contacted him, he said. Still, Medicare never blocked his national provider ID, which is used to fill prescriptions, said Bagner, who has been told he is considered a victim.

The Centers for Medicare and Medicaid Services, which runs Part D, declined to answer specific questions. A spokesman provided a statement saying the agency "actively works to detect and prevent provider fraud" and refers cases to law enforcement if appropriate.

Unlike other parts of Medicare, Part D is run by private insurance companies. When these insurers notice spikes in a doctor's prescribing and suspect fraud, Medicare encourages but doesn't require them to notify an outside contractor it pays to investigate fraud.

Insurers aren't allowed to block a doctor's prescriptions, however. Nor can the contractor directly access patient medical charts to assess whether the patient actually saw the doctor or had a condition that warranted the medication. It must go back to the insurers, which then request the records from doctors or pharmacies. Most cases die at this level.

Law enforcement investigators and insurers say an increase in tips and complaints suggests Part D fraud is rising. But pursuit of the cases sometimes falls to local agencies such as the Los Angeles County Health Authority Law Enforcement Task Force.

Sheriff's Sgt. Steve Opferman, who heads it, said Medicare is of scant help to local agencies trying to combat Part D fraud. It can take "months or years," he said, to get basic information, such as a physician's prescribing or billing data, for the program.

Opferman called Part D "icing on the cake" for crooks. "Why," he asked, "is the government so reluctant to stop this?"

Jennifer LaFleur contributed to data analysis for this report.

ProPublica is an independent, nonprofit newsroom that produces investigative journalism in the public interest. You can find a more detailed report on this investigation here.

Many Americans 65 and older are familiar with Medicare Part D. It helps seniors with the cost of prescription drugs. The nonprofit news organization ProPublica has a story out today, detailing how vulnerable this program is to fraudulent spending and how little the federal government's doing to stop it.

ProPublica's Tracy Weber was the lead reporter.

So, your story takes us back to 2006, when Medicare part D was first being rolled out. And you quote a law enforcement official in Los Angeles as saying "let the crime spree begin." What did he see about this program that early on?

TRACY WEBER: Well, part D wasn't set up to look at what the doctors were doing. It was set up to get senior and the disabled their prescriptions as quickly as possible. It wasn't sort of set up to have any safeguards against fraud in it. And investigators, when they heard about the program, they knew immediately that it would be vulnerable.

GREENE: They saw a program where speed was the priority. I mean, let's get this money and get these seniors the drugs and the help that they need as fast as possible, and not worry about what could be going wrong.

WEBER: Right. And most private insurers have about a month to pay a claim for a drug. But in Part D, it's 14 days, and it's a so-called pay-and-chase. You pay the claim, and then if there's a problem with it, you try to and investigate it and get your money back. But, as anyone knows, with scams, it's going to be really hard to get your money back after you've already paid it.

GREENE: What are some of the actual schemes that you've uncovered?

WEBER: Well, we got onto this when we called up a psychiatrist in Los Angeles. And he was prescribing massive amounts of really expensive brand name drugs, and drugs that a psychiatrist wouldn't normally prescribe, like asthma drugs. And we called him up, because in 2010, he had written $3.8 million worth of these drugs. And he said: I didn't write any of those drugs. And it turns out that he had gotten involved with a clinic where they call, you know, asked him, hey, we'll set you up in this clinic. You'll just come and see patients. We'll take care of the billing, and you just get paid when we get paid.

And, apparently, what investigators told him is they took his identification. They had prescription pads, everything, and started writing bogus prescriptions on his identification. And what was really interesting is once I started poking around in his case, investigators all along the way had known, but no one had stopped or blocked his number to stop the fraud from going on.

GREENE: So, can you give me some of the reasons why federal oversight is so ineffective?

WEBER: Well, when we took a look at where cases go - like, let's say, for instance, private insurers spot something they consider to be fraudulent and...

GREENE: And we should say private companies are managing this program for the federal government.

WEBER: Right. And they take these tips, and they send them on to Medicare's fraud contractor, known as the Medic. The Medic then sort of investigates the case, looks at the doctors prescribing across plans, and then refers those cases to the inspector general, which investigates them. But only a tiny percentage of the cases that the Medic looks at get referred. Just 12 percent of the cases from April 2010 to March 2011 were referred on to the inspector general.

GREENE: The rest fell off somewhere along the way.

WEBER: Right. And the insurers tell us they never hear back, and they just disappear. Everyone points to resources. U.S. attorneys can make whatever they want a priority, and if health care fraud is not a priority, the cases will not get prosecuted. But many people believe that Medicare - the investigators we talk to, the insurers - should take some steps to be able to block a doctor's ID number if they believe it's involved in fraud, or else give the doctor a new identification number to prevent further fraud from going on.

GREENE: I get the sense from your story that federal officials were not all that willing to play ball when you went to them as you were doing your reporting. But I guess I just wonder, we're talking about a $67 billion program here, and some of these schemes are in the hundreds of thousands, maybe a couple million dollars. Is it possible that they've just decided that, given the relative small amounts of money, it's just not worth paying to enforce this strictly?

WEBER: That could be true. We asked a series of detailed questions of Medicare about this and, you know, what they do to pursue it, and they gave us a paragraph response, and basically said they can take it seriously and refer cases to law enforcement. But it could very well be that on a scale of what they consider to be relevant. This doesn't rise to something they want to pursue.